2. management fraud: distinguished from other types of fraud both by nature of the perpetrators and by the method of deception. Management fraud is deception perpetrated by top management's manipulation of financial statements

3. investment scams or consumer scams: fraudulent and usually worthless investments are sold to unsuspecting investors

4. vendor fraud: perpetrated by vendors; comes in 2 main varieties; fraud pepetrated by vendors acting alon, and fraud perpetrated through collusion between buyers and vendors

5. customer fraud: customers not paying for goods purchased, getting something for nothing, or deceiving organization into giving them something they should not have

Charles Ponzi scheme

Convert his Dollar in to favorable exchange rate currency.

Use the funds to purchase international postal coupons in countries with weak economies.

Exchange the coupons back into a favorable foreign currency and finally back into American funds.

He gave early investors a return on their initial investments.

If company has a profit margin of 10%, to make up for a $1,000,000 fraud the company would have to have additional revenue of about....

$10,000,000

(1,000,000 * 10) or (1,000,000/0.10)

T/F
In civil cases, fraud experts are rarely used as expert witnesses.

False: In civil cases, fraud experts often serve as expert witnesses

T/F
The only group/ business that must report employee embezzlement is the federal government.

Fales: Banks are required to report their frauds to the government because of their FDIC insurance

T/F
The single most critical element for a fraud to be successful is opportunity.

False: Confidence is the single most critical element for a fraud to be successful.

T/F
Occupational fraud is fraud committed on behalf of an organization.

False: Occupational fraud is usually committed agains an organization.

Direct vs. Indirect fraud

Direct fraud does not involve third parties

Indirect Fraud invovles third parties

T/F
When fraud is committed, criminal prosecution usually proceeds first.

True

Corporate employee fraud fighters...

prevent, detect, and investigate fraud within a company.

What types of people commit fraud?

Anyone can commit fraud. Fraud perpetrators usually cannot be distinguished from other people based on demographics or psychological characteristics. The types of people who commit fraud are ordinary people, just like you and me.

False: Fraud perpetrators who are prosecuted, incarcerated, or severally punished usually do not commit fraud again. In fact, they have a very low rate of recidivism, while perpetrators who aren't preosecuted have a high rate of recidivism.

T/F
A proper system of authorization will help ensure good internal controls.

True

T/F
Good documents and records are some of the best preventive controls.

Which one of the following is not one of the three elements of the control system of an organization?
A. the control environmentB. management
C. control activities or procedures
D. the accounting system

B. management

(this multiple choice question has been scrambled)

Which of the following kinds of pressure is most often associated with fraud?
A. work related pressureB. financial pressure
C. vice pressure
d. all of the above

B.

(this multiple choice question has been scrambled)

Which of the following is not a primary control procedure?
A. physical safeguardsB. decreasing work related pressure
C. independent checks
D. use of documents and records to create an audit trail

B.

(this multiple choice question has been scrambled)

Which of the following is not a control activity?
A. system of authorizations
B. documents and recordsC. appropriate hiring procedures
D. independent checks

C.

(this multiple choice question has been scrambled)

Reward power

ability of a fraud perpetrator to convince a potential victim that he or she will receive a certain benefit through participation in the fraud scheme

Coercive power

ability of the fraud perpetrator to make an individual perceive punishment if he or she does not participate in the fraud

expert power

ability of the fraud perpetrator to influence another person because of expertise or knowledge

legitimate power

ability of the fraud perpetrator to convince a potential perpetrator that he or she truly has power over him or her

referent power

abiliyt of the perpetrato to relate to the potential co-conspirator

Common factors that allow fraud to take place within organizations (5)

inability to judge the quality of performance

failure to discipline fraud perpetrators

lack of access to information

ignorance, apathy, and incapacity

lack of audit trail

Control Environment (5)

Managements role and example

Management communication

appropriate hiring

clear organizational structure

effective internal audit department

The Accounting System

An effective accounting system provides an audit trail that allows frauds to be discovered and makes concealment difficult

A good accounting system should ensure that recorded transactions are

1. valid

2. properly authorized

3. complete

4. properly classified

5. reported in the proper period

6. properly valued

7. summarized correctly

Control activities (procedures)

Segregation of duties, or dual custody

system of authorizations

independent checks

physical safeguards

documents and records

Why is it important to conduct a thorough fraud investigation when fraud is suspected?

to avoid wrongly targeting innocent people

gather sufficient factual evidence about the suspected fraud

ensure a complete report of all the facts and circumstances both incriminating and exonerating

"evidence square"

testimonial evidence: interviews, interrogations, and honesty tests

Documentary evidence: evidence gathered from paper, computers, and other written or printed sources